Government urged to rethink road taxation policy to spur EV uptake

Motoring tax needs a rethink if it is going to be fit for the twenty first century and the increase in electric vehicles (EVs), according to the British Vehicle Rental and Leasing Association (BVRLA).

The RAC though said that its own findings suggested the UK was “still some distance” from the “tipping point” where consumers would buy electric vehicles as their first choice

The BVRLA made the call in its reportRoad to Zero: time to shift gear on tax, which included a series of viewpoints on taxation change from industry groups such as the RAC, Centre for London and Energy UK.

Chief executive of the BVRLA Gerry Keaney said a “simple, fair and well signposted tax regime” was required to meet the challenges set out by the government on mobility and clean growth through zero-emission transport.

“To put it bluntly, motoring tax needs a rethink. Introducing a new tax is risky, so it is not surprising that policymakers have preferred to tweak – in some cases freeze – existing motoring measures,” he said.

“The advent of increasingly connected, electric and shared road transport is challenging this fiscal status quo. Today’s CO2 emissions-based tax regime has a limited shelf-life and is not effective enough in tackling increasingly devolved policy priorities, such as urban air quality and congestion.”

Broadly, the various industry groups questioned agreed that the current system of Vehicle Excise Duty (VED) and Fuel Duty, mixed with the desire to decarbonise vehicles, meant taxation needed to be overhauled to include options such as road charging. Currently, HM Revenue and Customs brings in £40bn in revenue from VED and fuel duty, which is 5% of all taxation raised.

The RAC though said that its own findings suggested the UK was “still some distance” from the “tipping point” where consumers would buy electric vehicles as their first choice. But it did report motorists’ attitudes to taxation were changing, especially with regard to road pricing. In 2014, only 28% would pay per mile on roads compared to 35% in 2018. Opposition to road user charging also fell from 45% to 38% over the same period.

The Centre for London said that with revenues declining at all levels, road charging is a way for cities to ensure that roads are self-financing, and that funding is fairly allocated between the different authorities responsible for their management.

The director of the Institute of Fiscal Studies, Paul Johnson, said the UK “can’t continue to ignore this issue and pretend that the status quo is sustainable”.

“We need a tax system which aids the move towards zero carbon transport. And we need one which continues to levy a charge on road users, not so much because that will be important to the public finances – though it will – as because we need some way of taxing the external costs created by road users,” he said.

“Since by far the greatest of those external costs is the congestion created by driving, the move away from burning petrol won’t, in fact, change that consideration all that much.”

A joint statement from chair of the Environmental Audit Committee Mary Creagh and chair of the Environment, Food and Rural Affairs select committee Neil Parish said the Government had a “good opportunity to work with the sector” to increase EV uptake, and create a “long-term, sustainable and environmentally focused tax base that continues to support government revenues and clean air policy objectives”.

Investment uncertainty

The report comes at a time where the investment community is casting more scrutiny onto EV charging infrastructure. A new S&P Global Ratings report, released this week, notes that the infrastructure market for EVs globally could reach $350bn in annual investments in the next decade, up from $20bn today.

However, the report warns that the business model for charging stations is “currently unprofitable”, due to unpredictable supply and demand patterns and uncertainty as to how network operators will react to increased grid demand.

The report notes that the falling prices of EVs will make the market more attractive to investors, but that European utility firms are best placed to make substantial investments into infrastructure.